Question

In 2018, Loblaws Companies Ltd., Walmart Canada Corp., Sobeys Inc., Metro Inc., and Giant Tiger Stores Ltd., among others, confessed to being involved in a bread price-fixing scheme. The firms allegedly agreed to increase the price of bread by at least $1.5 over the years 2001 and 2015.Analysts often refer to bread as a loss leader – bread is typically sold at supermarkets at a price lower than its cost to entice consumers to shop at the supermarket and ultimately purchase profit-generating items. The firms worked together to raise the price of bread; the consumer price index for bread, rolls, and buns rose 96% between 2001 and 2015.The investigation started when Loblaw publicly admitted to its wrongdoing. Loblaw offered a $25 gift card as compensation for their involvement in fixing bread prices. The company captured the positive light of consumers as social media buzz share the arrival of their card. The gift card strategy helped shift the narrative in Loblaw’s favor.

1. What is price fixing?
2. Why is price fixing illegal in the United States of America, Canada and other countries including Malaysia?
3. Examine the literature on the price-fixing agreements in Malaysia. Select only one.
   1. Explain the agreement.
   2. If you were the CEO of one of the parties of the agreement, what would you do?                   

Answer 1

a

Price fixing is an agreement between to or more sellers to not sell their product below a particular price in the market. This is a way to increase the price of the product and earn a higher profit.

b

The reason for price fixing considered as illegal is that it is against the principle of free competition. In the free market, the price is decided by the supply and demand in the market. By controlling fixing the price companies try to influence the market and influence the fair price.

It is a kind of collusion which gives the advantage to sell-side against buy side and therefore is illegal.

c

i

Malaysia has divided price-fixing agreement into horizontal and vertical agreements. The given question talks about a horizontal agreement.

The law states that

"certain horizontal agreements with the “object” of engaging in cartel practices are “deemed to have the object of significantly preventing, restricting, or distorting competition”."

It means that the horizontal agreements of price fixing may restrict competition and therefore they are illegal

ii

If I were the CEO of one of the company, I would first discuss to other CEOs to take a legal route in which the government set the price of bread since it is a loss leader if they don't agree I would give information to the government about the meeting where it is discussed and reject to be a part of the cartel which is fixing price.